Brazil keeps tax on autos low to stimulate economic growth

March 30, 2013|Reuters

By Anthony Boadle

BRASILIA, March 30 (Reuters) - The Brazilian governmentpostponed until next year increases in taxes on the sale of carsand trucks in a bid to stimulate demand for manufactured goodsand spur economic growth, the Finance Ministry said on Saturday.

The IPI tax on manufactured products was reduced last yearfor vehicles as part of a barrage of tax breaks and otherstimulus measures by President Dilma Rousseff's government torestore life to a flagging economy in Latin America's largestnation.

The tax on vehicles was reintroduced this year and thegovernment planned to restore the levy to previous levels, butweak vehicle sales led it to put off the plan.

Finance Minister Guido Mantega said the government wanted to"avoid the risk of a drop in sales throughout the year."

"The car industry is very important for Brazil's economy, itaccounts for 25 percent of industrial production," Mantega saidon Globo TV. "So, to keep industrial output growing, it isimportant that the auto industry keeps growing."

Brazil's economy grew just 0.9 percent last year, amiserable performance following last decade's boom. Along withcurrency losses, it caused Brazil to fall back behind Britain toseventh place among the world's largest economies.

The economy perked up and grew somewhat faster in the lastthree months of 2012 when private investment rebounded, butmanufacturing remained stuck in its years-long slump, falling0.5 percent in the fourth quarter.

A stagnant economy that is unaffected by government stimulusmeasures, combined with rising inflationary pressures, has begunto cloud the 2014 re-election prospects for Rousseff, though sheis still highly popular thanks to low unemplyment.

The Brazilian central bank expects the economy to expand by3.1 percent this year, while Mantega still believes GDP growthcould top 4 percent.

The ministry said the postponement of the IPI tax increasesfor vehicles through December will cost the government 2.2billion reais ($1.09 billion) in lost tax revenue.

"With this decision, the government is stimulating not justthe automobile industry, one of the main drivers of the economy,but also the whole chain of industries such as car parts,upholstery and accessories," a ministry statement said.

The IPI tax on small cars with motors of up to 1,000 cc, forexample, was due to rise to 3.5 percent on Monday but willremain at 2 percent through the end of the year, the ministrysaid. It had been 7 percent before it was cut to zero last year.

The tax on larger cars with flex motors of up to 2,000 ccwill remain at 7 percent instead of going up to 9 percent asplanned, and gasoline cars with continue to be taxed at 8percent instead of rising to 10 percent.

Cars with gasoline motors larger than 2,000 cc will continueto have an IPI tax of 25 percent levied on them. Sales of truckswill continue to be exempt from any IPI tax, the ministry said.